IMF Working Papers

A Quarterly Projection Model for Tonga

By Sam Ouliaris, Celine Rochon, Daniel Taumoepeau

June 20, 2025

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Format: Chicago

Sam Ouliaris, Celine Rochon, and Daniel Taumoepeau. "A Quarterly Projection Model for Tonga", IMF Working Papers 2025, 121 (2025), accessed June 23, 2025, https://doi.org/10.5089/9798229013390.001

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Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

This paper customizes to the Tongan economy a macroeconomic model for medium-term quarterly projections of key macro variables (QPM): output, inflation, interest rate, and exchange rate. The model is calibrated to embody the specific attributes of the Tongan economy such as the persistence of domestic output, core inflation and interest rates, as well as Tonga’s monetary policy transmission. It is then used to study three scenarios and assess their impact on the baseline. The first scenario involves shocks proxying for a bank failure. The second scenario introduces shocks that simulate the consequences of a natural disaster. Finally, the third scenario introduces shocks that represent a significant negative external shock on Tonga. These shocks were chosen to reflect the sensitivity of Tonga to adverse financial shocks, to their trading partners’ macroeconomic policies, and to extreme weather events.

Subject: Distressed institutions, Environment, Exchange rates, Financial institutions, Financial services, Foreign exchange, Inflation, Inflation targeting, Interest rate parity, Monetary policy, Natural disasters, Output gap, Potential output, Prices, Production, Real exchange rates, Real interest rates

Keywords: Distressed institutions, Exchange rate arrangements, Exchange rates, Forecasting and Policy Analysis, Global, Inflation, Inflation targeting, Interest rate parity, Monetary Policy, Natural disasters, Nominal effective exchange rate, Output gap, Pacific Islands, Potential output, Quarterly Projection Model, Real exchange rates, Real interest rates, Transmission Mechanism

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